A few short data points before discussion.
Yesterday, one of the largest companies in the world by market value dumped ~$200B+:
Furthermore, Snap, had an unbelievable whipsaw in the same day due to blowback from FB and a positive earnings release post-close:
While movements like this tend to prompt the crowd to skewer the efficient market hypothesis in the short run, it does resurface a number of questions for the individual investor:
- Is the occasional wild swings in publicly marked enterprise value a feature or a bug?
- Does a public markets investor have adequate information to make high-ish probability wagers on the enterprise value of the company?
- Are most public markets participants suited to participate in the venue?
Of course, I have thoughts on each, and there are no right answers. But they pertain to the marriage of my personality to the characteristics of public markets (both features and flaws). Your personality may merit a different set of answers.
That said, on a daily basis via Twitter, I see countless investors’ thoughts and actions provide strong implied answers to the above questions. Especially on days when the above swings in market values are extreme. Most often – investors:
- Take price momentum as a directional indication of the quality of corporate strategy
- Believe that their insight based on analysis of publicly available data is equal or better to the broader marketplace
- Lack conviction when fundamentals and public marks aren’t going “up and to the right.”
Mind you, these investors I am referring to often include fiduciaries, fund managers, analysts, etc. The natural question of the reader is, does this author believe he is above the crowd and master of the universe?
No. As I laid out in a prior musing, I don’t invest (for the most part) in “businesses” explicitly. I invest in broad mandates with an investor at the helm. I’m an LP. Why? Specifically I believe that I fail the second bullet point / question I posed. But that’s okay. I carved out my niche and love the vantage point by which I can spectate and participate. The question, reader, is have you taken the introspective time to figure out what your niche truly is?